Why Israel’s Talent Density May Not Save Its High-tech Industry
Sam Altman, the CEO of OpenAI, recently underscored the fact that Israel’s success in high-tech is due to the concentration of talent within its high-tech sector. Altman recognizes that Israel has not only a large number of talented individuals, but also a high concentration of them in one area. While this has propelled Israel’s high-tech sector forward in recent years, there is growing concern among experts that the industry may be in decline. Alan Feld, a founding partner in the venture capital fund Vintage, recently sounded the alarm on Israel’s high-tech industry, noting that he’s “never been as worried about the future of Israeli high-tech as I am today.” There are two main reasons for Feld’s concern: a lack of funding and a decline in the number of new startups.
First, funding has become a major issue for Israel’s high-tech industry. In 2022, Israeli venture capital funds raised over $4 billion, and companies raised more than $17 billion. However, in 2023, the Israeli high-tech industry is facing its worst year for raising capital in the past fifteen years. While this decline is partly due to decreased investments globally, Israel has been hit especially hard. In the first quarter of 2023, investments in Israel fell by 60%, compared to 50%-40% decreases in Europe and the US. This is partly due to investors evaluating investments based on environmental, social, and governmental (ESG) criteria. If there are doubts about the quality of governance in Israel, investors are hesitant to invest in Israeli startups. Additionally, recent judicial legislation is causing significant uncertainty throughout the economy and leading entrepreneurs to register their businesses abroad, which affects employment levels and tax revenue.
Second, the number of new startups in Israel is declining steeply. This is not a new phenomenon; it has been happening for several years. In 2013, almost 1,400 startups were established in Israel. In 2022, however, only about 600 startups were established, representing a decrease of 14% per year. This year, it is estimated that only about 400 new startups will emerge. The decline in the number of startups is partly due to startups struggling to compete for quality personnel against large companies. Additionally, recent political unrest and protests have made it difficult for entrepreneurs to create a safe and comfortable work environment.
Experts at the Eli Hurvitz conference are warning that Israel may be approaching a point of no return. Professor Eugene Kandel, former close economic advisor to Benjamin Netanyahu and current co-chairman of the Start-Up Nation Central Policy Institute, recently stated: “We are running out of time. There’s a flywheel effect, and once it loses momentum, it takes a lot of effort to regain it.” Without a strong ecosystem and provisions of assistance from the government, Israel’s high-tech industry may suffer irreparable harm.
Editor Notes:
While Israel has long been praised for its high-tech successes, there are concerns that the industry’s momentum may be slowing. A lack of funding and a decline in the number of startups are threatening Israel’s high-tech industry. The government must take steps to provide support to entrepreneurs and promote a more favorable business environment to prevent further decline.
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